tag:blogger.com,1999:blog-6276561747841568697.post1785771752207387427..comments2024-03-19T05:15:56.934-04:00Comments on Krugman-in-Wonderland: Goldstein and GoldWilliam L. Andersonhttp://www.blogger.com/profile/01802990642236807359noreply@blogger.comBlogger63125tag:blogger.com,1999:blog-6276561747841568697.post-31013035466873969222012-09-02T13:37:50.971-04:002012-09-02T13:37:50.971-04:00burkll13: a person who intends to make a good deci...<b>burkll13</b>: <i>a person who intends to make a good decision utilizes as much information as they deem relevant. </i><br /><br />But we don't judge something a good decision based on intention, but whether the person does, in fact, use all the available, relevant information. <br /><br /><b>burkll13</b>: <i>while what you said is very true, it is irrelevant to whether the end result of decisions were good for society or bad for society. </i><br /><br />It should have been obvious we were using the term "good" as efficacious, not in the sense of morally beneficial. <br /><br />Zachriel: People making good decisions {the best choices based on the available information} can still lose money. <br />Zachrielhttps://www.blogger.com/profile/11268229653808829377noreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-14242437538027708612012-09-02T12:46:34.739-04:002012-09-02T12:46:34.739-04:00"Nope, that's not what we said. "
n..."Nope, that's not what we said. "<br /><br />no, i believe it is. a person who intends to make a good decision utilizes as much information as they deem relevant.<br /><br />"But everyone deals with limited information, and no one is omniscience. "<br /><br />while what you said is very true, it is irrelevant to whether the end result of decisions were good for society or bad for society. you might think that distinction is nit picky, but i think its important (in economics) to understand the differences from the different perspectives.<br /><br />in this abstract situation, nothing about the end result was good; only the original motivation to act.burkll13https://www.blogger.com/profile/00458192777661669534noreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-30213555468100128522012-09-02T12:16:07.406-04:002012-09-02T12:16:07.406-04:00burkll13: so as long as a person intends to make a...<b>burkll13</b>: <i>so as long as a person intends to make a good decision, its inherently good? </i><br /><br />Nope, that's not what we said. <br /><br /><b>burkll13</b>: <i>no, if a person allocates resources that are out of line with consumer preference, it is in no way "good". they lose money and society is worse off. </i><br /><br />But everyone deals with limited information, and no one is omniscience. <br /><br /><b>burkll13</b>: <i>BTW, you also need to apply this statement to the economic overlords ... </i><br /><br />That's right, which is why markets are generally much more efficient at distributing goods and innovating new products. Knowledge is distributed and communicated across the largest number of people. <br /><br />Nevertheless, the race is not always to the swift.Zachrielhttps://www.blogger.com/profile/11268229653808829377noreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-83423221554915307062012-09-02T10:48:35.334-04:002012-09-02T10:48:35.334-04:00"People necessarily have only limited knowled..."People necessarily have only limited knowledge."<br /><br />BTW, you also need to apply this statement to the economic overlords you support. they are only people after all.burkll13https://www.blogger.com/profile/00458192777661669534noreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-23480321698023165962012-09-02T10:07:48.713-04:002012-09-02T10:07:48.713-04:00so as long as a person intends to make a good deci...so as long as a person intends to make a good decision, its inherently good?<br /><br />no, if a person allocates resources that are out of line with consumer preference, it is in no way "good". they lose money and society is worse off.burkll13https://www.blogger.com/profile/00458192777661669534noreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-23029563412867135362012-09-01T09:42:33.333-04:002012-09-01T09:42:33.333-04:00burkll13: if people are losing money because of pr...<b>burkll13</b>: <i>if people are losing money because of prior decisions, what makes those decisions "good"? </i><br /><br />People necessarily have only limited knowledge. If they lack prudence, for instance, ignore bad information, or fail to do reasonable due diligence, then it can be considered a bad decision. If they make the best possible decision based on the information available to them, then it can be considered a good decision. <br /><br />The race is not {always} to the swift, nor the battle to the strong, neither yet bread to the wise, nor yet riches to men of understanding, nor yet favour to men of skill; but time and chance happeneth to them all.<br />Zachrielhttps://www.blogger.com/profile/11268229653808829377noreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-89873518819044188392012-09-01T01:01:51.488-04:002012-09-01T01:01:51.488-04:00"People making good decisions can still lose ..."People making good decisions can still lose money."<br /><br />if people are losing money because of prior decisions, what makes those decisions "good"?burkll13https://www.blogger.com/profile/00458192777661669534noreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-29605120655417890392012-08-31T18:25:08.949-04:002012-08-31T18:25:08.949-04:00Rick T: Even though we like to think otherwise, a ...<b>Rick T</b>: <i>Even though we like to think otherwise, a house is a consumption item, not an investment. </i><br /><br />In many respects, yes. So deflation hurts the average homeowner with a mortgage. Above, you seemed to be suggesting otherwise.Zachrielhttps://www.blogger.com/profile/11268229653808829377noreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-27705072957293269022012-08-31T17:49:37.824-04:002012-08-31T17:49:37.824-04:00Zach:
"Mike M: Debtors do become poorer IF t...Zach:<br /><br />"Mike M: Debtors do become poorer IF they used the debt for consumption or non productive asset purchases. <br /><br />If you mean a house, for instance, then yes."<br /><br />I agree with you Zachriel, in this sense: Even though we like to think otherwise, a house is a consumption item, not an investment. <br /><br />Yes, if you were living in the woods under a tree, moving into a house (whether you bought it or rented it) would be an investment, in that you would get a good return on your extra expense to rent or pay the mortgage, in the form of better health, a longer life with less chance of dying from an animal bite, or whatever else bad might happen to you under the trees. When you already have a decent house, going deeply into debt to have granite counters and luxury carpets is a consumption item, plain and simple. Nothing about that move that will bring in more income, but you have increased your outgo.<br /><br />An investment is intended to bring in enough income to discharge any debt needed to acquire the asset. Consumption is spending money in a way that, however pleasurable, does not bring in any extra income as a result. Since we have escaped the woods (or more accurately, barely heated shacks) housing has turned from investment to consumption.<br /><br />Why did so many get so far into debt to buy houses in the late real estate bubble? Because a combination of easy money from the Fed (and other central banks) and decade of pro-housing policies created the bubble, and there were powerful incentives to participate. After all the wealthy and middle class owned houses, rather than withdraw the bad policies, the government and banks figured out ways to let less wealthy into the ponzi scheme right at the top. Thank you, Barney Frank and others, for all that help!<br /><br />This is another example of how every severe deflation is a consequence of a previous government and central bank induced inflationary bubble.<br /><br />If you don't want a deflationary collapse, stop inducing inflationary bubbles. This is the fault of easy money and bad government policies, not anything that the free market would have cooked up on its own without the government created bubble.Rick T.noreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-22006349068414257972012-08-31T15:09:23.749-04:002012-08-31T15:09:23.749-04:00Mike M: Investors and savors making proper decisio...<b>Mike M</b>: <i>Investors and savors making proper decisions can become wealthier. </i><br /><br />"Proper decisions"? People making good decisions can still lose money. That's what is meant by risk. <br /><br /><b>Mike M</b>: <i>Non investors and nominal savors that are wage earners have their cost of living reduced with and downward wage issues. </i><br /><br />Deflation without secondary effects would leave people without any change, as costs reduce with wages. It's the secondary effects that cause the dislocations associated with deflation. <br /><br /><b>Mike M</b>: <i>Debtors do become poorer IF they used the debt for consumption or non productive asset purchases. </i><br /><br />If you mean a house, for instance, then yes. <br />Zachrielhttps://www.blogger.com/profile/11268229653808829377noreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-587356449337435632012-08-31T13:29:10.288-04:002012-08-31T13:29:10.288-04:00Zac
You're having trouble discriminating dif...Zac <br /><br />You're having trouble discriminating differences and critically thinking through the matter.<br /><br />No I don't disagree with Rick. Investors and savors making proper decisions can become wealthier. Non investors and nominal savors that are wage earners have their cost of living reduced with and downward wage issues. I think Rick would agree but can't speak for him.<br /><br />Debtors do become poorer IF they used the debt for consumption or non productive asset purchases. Do you not get its the debt that's the problem. Apparently so.<br /><br />Your understanding of "four thousand years" of currency history is inaccurate and incomplete. In addition you fail to consider other government actions that artificially push people to non natural decision.<br /><br />Please refer back to my earlier post encouraging you to conduct additional study. Unless of course you think you have it all figured out.<br />Mike Mnoreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-29721716521944372382012-08-31T13:05:16.844-04:002012-08-31T13:05:16.844-04:00Debtors become poorer.Debtors become poorer.Zachrielhttps://www.blogger.com/profile/11268229653808829377noreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-24556342742091000452012-08-31T13:01:23.102-04:002012-08-31T13:01:23.102-04:00Mike M: So what. So long as my purchasing power of...<b>Mike M</b>: <i>So what. So long as my purchasing power of those wages remains the same. </i><br /><br />So you disagree with Rick, who claimed that people become wealthier. People with money become wealthier. Become poorer. And because of people's reaction to deflation, there are secondary effects. <br /><br /><b>Mike M</b>: <i>And yet you advocate interventionist policies that interfere with natural market conditions pushing an investor to do things they otherwise would not do. </i><br /><br />At this point, we've just been discussing the economic effects of deflation. However, any time the government issues currency, they are intervening in the economy, something which has been occurring for about four thousand years. <br /><br />Zachrielhttps://www.blogger.com/profile/11268229653808829377noreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-75147396736452232562012-08-31T12:33:15.322-04:002012-08-31T12:33:15.322-04:00Zac said
"When there is general deflation, ...Zac said <br /><br />"When there is general deflation, there is also downward pressure on wages"<br /><br />So what. So long as my purchasing power of those wages remains the same. Ahhhh but wait ... You will say that harms those wage earners with debt as the debt burden will increase. The problem is staring at you smack in the face. The problem is the debt not the naturally occurring deflation.<br /><br />"Each investor makes their own determination based on their understanding of market conditions."<br /><br />And yet you advocate interventionist policies that interfere with natural market conditions pushing an investor to do things they otherwise would not do.<br /><br />Do you not see the intellectual inconsistency in your positions.Mike Mnoreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-80182806390678564222012-08-31T11:51:29.903-04:002012-08-31T11:51:29.903-04:00Mike M: What is "excess" cash? At what p...<b>Mike M</b>: <i>What is "excess" cash? At what point does savings become excess? </i><br /><br />Savings are the excess beyond what is used for consumption. <br /><br /><b>Mike M</b>: <i>What is the proper format of savings? What is the proper time frame to hold cash or savings? Who defines these terms? You or the holder of the asset? </i><br /><br />Each investor makes their own determination based on their understanding of market conditions. Generally, if the economy is deflating, people move their assets to increase their liquidity. They do this because they can realize a real return, and they can avoid risks. As people do this, it reduces the velocity of money, which increases the natural deflation mentioned above. That causes more people to pull their assets. And so on.Zachrielhttps://www.blogger.com/profile/11268229653808829377noreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-38357510212270878252012-08-31T11:47:02.174-04:002012-08-31T11:47:02.174-04:00Rick T: When there is a general deflation, anyone ...<b>Rick T</b>: <i>When there is a general deflation, anyone with a job or fixed income becomes wealthier, in that they can buy more things, or pay down debt, with the money they are saving through lower prices. </i><br /><br />When there is general deflation, there is also downward pressure on wages. <br /><br /><b>Rick T</b>: <i>One cause of the strong economy in the Clinton years came from the new availability of goods from China which were much lower priced than the US manufactured goods they replaced, giving people more money to spend on other things. </i><br /><br />It wasn't a general deflation. And it displaced American workers. However, the economy was rapidly expanding, so it absorbed those workers. Notably, there was ~2½% annual inflation from 1993 to 2001. <br /><br /><b>Rick T</b>: <i>So you now appear to agree with me that deflation is good for consumers, and that the outlook for lower prices doesn't cause a consumer to keep money in the mattress because they want the computer or the food now, not a year from now. </i><br /><br />People may delay some purchases due to deflation, but if they have excess money, they will spend it at some point. <br /><br /><b>Rick T</b>: <i>But you still insist that a mattress is a compelling alternative to investors when there is deflation, even if they believe that an investment in some business would bring a higher return. </i><br /><br />Risk. <br /><br /><b>Rick T</b>: <i>People who invest in a business believe, rightly or wrongly, that the investment will bring 15% or 25% or 50%, an order of magnitude something like that. </i><br /><br />Keep selling it.<br /><br />Zachrielhttps://www.blogger.com/profile/11268229653808829377noreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-22027846300701343732012-08-31T11:43:25.878-04:002012-08-31T11:43:25.878-04:00Zac said "but the question is what to do with...Zac said "but the question is what to do with excess cash until that time. "<br /><br />What is "excess" cash? At what point does savings become excess? What is the proper format of savings? What is the proper time frame to hold cash or savings?<br /><br />Who defines these terms? You or the holder of the asset?<br /><br />Who are you or any other central planning elite to dictate to me, either via edict or policy manipulation, what to do with my property? If I make a bad decision, I am responsible for my action. If you as a central planner make a bad decision, you are responsible. In which case whom do I petition for redress? Or are central planner infallible? <br /><br />You see, when you decide you want to play master of the universe, you raise more questions than you answer.Mike Mnoreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-34758658553598125322012-08-31T11:31:16.449-04:002012-08-31T11:31:16.449-04:00Zachriel: "If you're talking about a home...Zachriel: "If you're talking about a home computer, that's consumption. People buy home computers because they want them now. If you are talking about an investment, which is the topic, then people buy them now because they need to invest in order to grow their wealth. In a deflating economy, they can delay the investment indefinitely and still increase their wealth with little or no risk."<br /><br />Consumption varies by country by time, but to look at the US in the current day, it amounts to about 70% of GDP, if I recall. When there is a general deflation, anyone with a job or fixed income becomes wealthier, in that they can buy more things, or pay down debt, with the money they are saving through lower prices. One cause of the strong economy in the Clinton years came from the new availability of goods from China which were much lower priced than the US manufactured goods they replaced, giving people more money to spend on other things. Wal-Mart selling Chinese goods cheap created jobs all over the economy, since its customers now had more money to spend on other things. As Bastiat pointed out, you have to look at "that which is unseen."<br /><br />So you now appear to agree with me that deflation is good for consumers, and that the outlook for lower prices doesn't cause a consumer to keep money in the mattress because they want the computer or the food now, not a year from now. And you will probably concede now that with consumption ~70% of GDP, deflation in some things would boost demand for other things and help the economy that way. Good.<br /><br />But you still insist that a mattress is a compelling alternative to investors when there is deflation, even if they believe that an investment in some business would bring a higher return. But consider the magnitudes involved. As you have said, prices tend to be sticky on the downside. So what is the biggest deflation anyone is likely to expect, or we have ever had? 1%/year? 2%? Has it ever been more than 5% except for a very short interval? I don't have time to look it up, but these are very trivial returns.<br /><br />People who invest in a business believe, rightly or wrongly, that the investment will bring 15% or 25% or 50%, an order of magnitude something like that. You think they are going to trade in that potential because deflation might reduce it by 1%? I am not saying that people always achieve their goals, but they wouldn't be investing in a risky business (and usually adding a lot of sweat labor) to earn 1% more than they would make in a bank CD or in their mattress because there is a tiny amount of deflation.<br /><br />The only thing in which one can fairly say investment is higher during inflationary times is inventory. A car maker will buy extra steel if it thinks the price of steel is going to go up. But building inventories provides a very limited and temporary help to the economy, and hurts the economy as soon as price increases moderate and the car maker works off excess inventories so it can pay down debt. This creates extra volatility and layoffs at the steel maker. Who needs that? <br /><br />If the best you can say for inflation is that it hurts consumption, it doesn't affect investment much, but it ties up capital needlessly in extra inventory and thereby makes the economy more volatile, then I'll stick to the idea that we should be trying to encourage deflation, not inflation.<br /><br /> Rick T.noreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-14298916092637014392012-08-31T11:11:49.222-04:002012-08-31T11:11:49.222-04:00Anonymous: You know, people don't just eternal...<b>Anonymous</b>: <i>You know, people don't just eternally store money under the mattress, specially because a load of money will have no value for you if you don't use it eventually. </i><br /><br />Eventually, most people will spend their money when they want something, but the question is what to do with excess cash until that time. <br /><br /><b>Anonymous</b>: <i>The more money people save, the more money available for enterpreneurs which would certainly give people incentives so they would invest their saved money. </i><br /><br />We're talking about money saved in a mattress. In a modern economy, with deflation, people tend to move money out of risk with preference to liquidity.Zachrielhttps://www.blogger.com/profile/11268229653808829377noreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-58068329261786103522012-08-31T11:00:47.552-04:002012-08-31T11:00:47.552-04:00But we'll repeat it again. In a deflationary e...<i>But we'll repeat it again. In a deflationary economy, money in a mattress gains value with little or no risk.</i><br /><br />You know, people don't just eternally store money under the mattress, specially because a load of money will have no value for you if you don't use it eventually. <br /><br /><b>In a deflating economy, they can delay the investment indefinitely and still increase their wealth with little or no risk.</b><br /><br />The more money people save, the more money available for enterpreneurs which would certainly give people incentives so they would invest their saved money. Specially because having a lot of money is not useful if you don't have anything to buy. <br /><br />BTW: people don't just wait eternally before they buy an iPhone. Even if they know the next iPhone will be cheaper. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-7470114826555072162012-08-31T10:02:59.021-04:002012-08-31T10:02:59.021-04:00Rick T: You were arguing that declining prices cau...<b>Rick T</b>: <i>You were arguing that declining prices cause investors not to invest, regardless of whether or not the declining prices are associated with an increase, or at least no diminishment, in profitability, due to lower costs from rising productivity. </i><br /><br />No. It doesn't preclude investment, it just discourages it. This was your question. <br /><br /><b>Rick T</b>: <i>What would keep people from continuing to invest in the industry, despite the lower prices? </i><br /><br />The answer is risk balanced against the safety of money in a mattress. <br /><br /><b>Rick T</b>: <i>In any event, uncertainty and risk exist in every investment at all times, and has nothing to do with inflation or deflation.</i><br /><br />Of course it does, for the reasons given above. But we'll repeat it again. In a deflationary economy, money in a mattress gains value with little or no risk. In an inflationary economy, money in a mattress loses value, so it encourages people to invest the money before it loses its value. <br /><br /><b>Rick T</b>: <i>For example, I asked whether steadily declining prices of computers stopped you from buying them, as you claim is how people behave in deflations, and you responded that one has to take risks in an inflationary economy. </i><br /><br />If you're talking about a home computer, that's consumption. People buy home computers because they want them now. If you are talking about an investment, which is the topic, then people buy them now because they need to invest in order to grow their wealth. In a deflating economy, they can delay the investment indefinitely and still increase their wealth with little or no risk. <br />Zachrielhttps://www.blogger.com/profile/11268229653808829377noreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-58912557013113888722012-08-31T09:10:32.039-04:002012-08-31T09:10:32.039-04:00Zachriel: "Where did you get the idea that ri...Zachriel: "Where did you get the idea that risking your money in innovation was a sure thing? "<br /><br />Hey, I know that better than you - investing in new things has been my business for more than 40 years. You were arguing that declining prices cause investors not to invest, regardless of whether or not the declining prices are associated with an increase, or at least no diminishment, in profitability, due to lower costs from rising productivity. You are wrong.<br /><br />Only if the drop in prices came from overcapacity in the industry and the cause of losses would investment diminish, and rightly so. Losses are the way the market tells people we have enough capacity, please do not waste our limited capital be creating more of it. Statist systems lack that information flow, or they ignore it because, say, investing in solar energy sounds sexy.<br /><br />In any event, uncertainty and risk exist in every investment at all times, and has nothing to do with inflation or deflation.<br /><br />Your other comments also don't really make much sense as responses to what you are quoting from me. For example, I asked whether steadily declining prices of computers stopped you from buying them, as you claim is how people behave in deflations, and you responded that one has to take risks in an inflationary economy. I am glad to argue our various issues, but this time you aren't giving me anything sensible to respond to.Rick T.noreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-55845349441524781992012-08-31T07:58:11.351-04:002012-08-31T07:58:11.351-04:00Rick T: What would keep people from continuing to ...<b>Rick T</b>: <i>What would keep people from continuing to invest in the industry, despite the lower prices? </i><br /><br />Because innovation is never a sure thing. There was that guy who invested in mechanical typesetters, a great idea, no doubt. He poured all his money into it, and went bankrupt. They'll probably make it work one day. Who knows. And that lady who put money into electric car lights. Sounds like the next great thing. But they couldn't make the batteries last long enough compared to old fashioned acetylene lamps. Poor thing, ended up impoverished. That's innovation for you! There's risk. <br /><br />Where did you get the idea that risking your money in innovation was a sure thing? <br /><br /><b>Rick T</b>: <i>To say that in a general deflation one's wealth increases by keeping cash in the mattress is not the case in the real world. </i><br /><br />Um, because that is the case in the real world when you have deflation. <br /><br /><b>Rick T</b>: <i>If you are hungry today, and you see from looking at futures prices that food will be cheaper next month, do you feel you are getting richer by not eating? </i><br /><br />That's irrelevant as that money isn't available for investment. <br /><br /><b>Rick T</b>: <i>We've known for decades now that every year computers get more powerful and cheaper, so does everyone sit around not buying them because their wealth will increase as their dollars will be worth more? </i><br /><br />No, because the modern economy is usually inflationary. So the money is wasting away if sitting in a mattress. You have to take some risks in order for your wealth to grow, or even to break even. <br /><br /><b>Rick T</b>: <i>I am trying to simplify things to explain them, but adding complexity favors my side, not yours, since markets handle complex interactions better than governments do. </i><br /><br />So now you change the subject. We're quite aware that markets act as a great distributed intelligence.Zachrielhttps://www.blogger.com/profile/11268229653808829377noreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-14607500452779674372012-08-31T05:41:52.170-04:002012-08-31T05:41:52.170-04:00Zachriel: "The problem with a general deflati...Zachriel: "The problem with a general deflation, even if strictly due to productivity gains, is that people will tend to horde cash rather than spend or invest. Why should they risk their money, when their wealth increases simply by putting cash in a mattress."<br /><br />Not true. Please look at the process, step by step, product by product: 1) Company X within the Widget Industry figures out a more efficient way to make Widgets. Its costs therefore drop and profits rise. Unlike its competitors, its lower costs let it cut prices and still maintain good profits. 2) Other companies in the industry learn or figure out how X did it, and they do it too. They cut prices and profits return to their previous level. So prices charged for Widgets are now lower than they were, but the industry is still profitable. What would keep people from continuing to invest in the industry, despite the lower prices? The profits are still there.<br /><br />To say that in a general deflation one's wealth increases by keeping cash in the mattress is not the case in the real world. If you are hungry today, and you see from looking at futures prices that food will be cheaper next month, do you feel you are getting richer by not eating? We've known for decades now that every year computers get more powerful and cheaper, so does everyone sit around not buying them because their wealth will increase as their dollars will be worth more? Obviously no to both examples.<br /><br />Consumption items that you want now are always more valuable now than not having them because you expect them to be 1% cheaper a year from now. Most people figure, hey, they might not even be alive in a year. And since, with improving productivity and lower costs a business can lower its prices and not hurt profits, the idea that entrepreneurs will leave their investment dollars in the mattress, turning down profitable investments because the industry in question has falling prices, makes no sense. Haven't computer and software companies invested billions over the years in an industry where falling prices are endemic? Despite Keynesian orthodoxy, deflation is good for the economy and society, not bad. <br /><br />"Your model only works in an abstract world. In the real economy, there are many more forces at work."<br /><br />I am trying to simplify things to explain them, but adding complexity favors my side, not yours, since markets handle complex interactions better than governments do. See the USSR economy, and the Chinese economy before its turn away from statism and toward capitalism 20 years ago, for some recent examples in the real world.<br />Rick T.noreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-19931765637649929752012-08-30T19:51:29.976-04:002012-08-30T19:51:29.976-04:00Rick T: Regardless of how we denominate the value ...<b>Rick T</b>: <i>Regardless of how we denominate the value of a product - dollars, yen, ounces of gold, wampum, whatever - increased productivity in making a given product will reduce its cost initially and then its price. </i><br /><br />Yes. <br /><br /><b>Rick T</b>: <i>This will make everyone in society richer, because they will have to give up less money to buy it, or barter fewer goods if there were no money, and can then use what is left for other things. </i><br /><br />Not everyone, but perhaps generally. <br /><br /><b>Rick T</b>: <i>There is nothing about being more efficient that will lower anyone's wages. </i><br /><br />People only want so many widgets. If you can saturate the market with widgets using fewer workers, then workers will be laid off. They may find other jobs, but that takes time and money; one of many sources of friction. And unemployed people cut spending, so demand drops, and you have deflation beyond what is expected due solely to productivity gains. <br /><br /><b>Rick T</b>: <i>A general decrease in prices across the economy is what you want to happen. </i><br /><br />Assuming nothing else changes, but other things often do change. The problem with a general deflation, even if strictly due to productivity gains, is that people will tend to horde cash rather than spend or invest. Why should they risk their money, when their wealth increases simply by putting cash in a mattress. This lowers the velocity of money, and creates additional deflationary pressure. Asset prices will drop to compensate, but if this creates an expectation of more deflation, people will hold onto their cash even more. <br /><br />Meanwhile, debtors are in a situation where their effective debt is increasing, so they cut spending, creating more deflation. <br /> <br />Your model only works in an abstract world. In the real economy, there are many more forces at work.Zachrielhttps://www.blogger.com/profile/11268229653808829377noreply@blogger.com